Codlea v Chief Commissioner of State Revenue  NSWCATAD 136
Codlea Pty Ltd (“the taxpayer”) sought a review of land tax assessments for the 2012 to 2014 land tax years issued by the Chief Commissioner of State Revenue (“Chief Commissioner”) which declined a primary production land tax exemption for its beekeeping operations.
As the land was not zoned rural land, both ss.10AA(2) (dominant use test) and 10AA(3)(d) (commerciality tests) of the Land Tax Management Act 1956 (the Act) were considered.
The land comprised 31.33 ha situated in Brunswick Heads. The land was variously zoned residential, wetland and coastal habitat.
In 2006 and 2011, respectively, the taxpayer lodged with the Department of Planning a Major Project and a Concept Plan application proposing a subdivision of the land into 167 residential lots. In 2013 the Concept Plan was approved but there was still no project approval so the subdivision and development could not go ahead.
In 2011, the taxpayer decided to pursue beekeeping and honey production as an economic interim use of the land. It contracted with Mr M Howes, a commercial beekeeper, to purchase the hives. the taxpayer also contracted with Mr Howes to manage those hives on the taxpayer’s behalf for $8,000 per quarter. The taxpayer also entered an agreement to sell the honey from its hives to Mr Howes. However by early 2913, the taxpayer renegotiated the management fee with Mr Howes to $5,000 per quarter as “it was plain to all concerned that the figure of $8,000 per quarter was excessive”.
The questions for determination by the Tribunal were:
Whether, in respect of any of the relevant land tax years, the “dominant use” of the land was for “the keeping of bees, for the purpose of selling their honey”;
Whether the beekeeping use of the land “has a significant and substantial commercial purpose or character”; and
Whether the beekeeping use of the land “is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)”.
Issue 1: Dominant use
The taxpayer argued that, at all relevant times, there was only one use of the land and that was the beekeeping use.
The Chief Commissioner, on the other hand, identified a second use of the land, which he described as the use of the land for residential subdivision and development. The Chief Commissioner submitted that this alternative use of the land was its dominant use in view of the $865,000 expended by the taxpayer 2011 to 2012 to further the development proposal and the physical activities carried out by surveyors on the land, water sampling, on-site ground water investigations and engineers who attended the site.
The Tribunal held that, as the Concept Plan approval did not authorise any works and further approvals would be required before any development of the land could be undertaken, the activities undertaken on the land to further the development proposal did not amount to a use of the land. Thus the dominant use of the land in the relevant land tax years was for the keeping of bees for the purpose of selling their honey.
Issue 2: Did the use of the land have a significant and substantial commercial purpose or character
The Tribunal relied upon the expert opinion of Mr Bruce White, an acknowledged beekeeper with over 50 years’ experience in the industry, who was engaged by the Chief Commissioner to provide an expert report on the taxpayer’s beekeeping activities on the subject land.
Mr White opined that the beekeeping industry has always comprised four groups of beekeepers – amateur/recreational beekeepers, sideline beekeepers, commercial beekeepers and queen breeders. Beekeepers fall into one or other of the first three groups, according to Mr White, based on the number of hives they own or operate, irrespective of the honey yields per hive. The sideline beekeepers usually operate between 40 and 400 colonies. Commercial beekeepers operate between 400 and 6000 hives.
Mr White also noted, that there were some activities that were not consistent with the characteristics and features of a sideline beekeeper including:
the fact that the taxpayer paid a professional beekeeper to carry out all the management of the beehives as well as the extraction of honey.
the high honey yields, which exceeded the average honey yields for sideline beekeepers.
the odd migration practices of leaving some hives on the property all year round when instead they should typically all be migrated.
The Tribunal also had regard to a Report of the Rural Industries Research & Development Corporation, against which the taxpayer would be regarded as a “part time” beekeeper.
Mr White concluded that the taxpayer was a “sideline” beekeeper, largely on the basis of the number of hives operated by the taxpayer.
The Tribunal found that the taxpayer was not a commercial beekeeper and therefore did not have the requisite commercial character.
Issue 3: The purpose of profit on a continuous or repetitive basis
The Tribunal found that the taxpayer’s beekeeping activities from 24 November 2011 to 31 December 2013 was not conducted for the purpose of profit on a continuous and repetitive basis. It arrived at this conclusion based on the evidence of Peter Hillig, a chartered accountant and insolvency practitioner who analysed the taxpayer’s profit and losses. Mr Hillig’s calculations revealed that the taxpayer’s beekeeping activities always made a loss. The taxpayer, on the other hand projected a profit. The major difference between Mr Hillig’s and the taxpayer’s calculations was Mr Hillig’s inclusion of Council rates as an expense of the beekeeping on the assumption that the “dominant physical use of the Land was for the purpose of beekeeping”.
The Tribunal found Mr Hillig’s treatment of council rates was correct. “Codlea cannot on the one hand claim that its only relevant use of the land is for beekeeping, and yet on the other hand claim that the expenditure (which has to be paid no matter what) does not relate to any extent to that very activity. Council rates are a necessary incident of land ownership. It is hard to imagine a circumstance where they should not be taken into account, either in whole or in part, in the calculation of profit.”
Mr Hillig also noted that the reduction in the management fee paid by the taxpayer to Mr Howes was in recognition of the uncommercial nature of the original arraignment. One of the consequences of the reduction in management fees was that the director of the taxpayer would undertake, free of charge, some of the activities previously performed by Mr Howes. The Tribunal commented that this was not a commercial arrangement.
The taxpayer put forward an alternative argument in support of its claim that s 10AA(2) is satisfied. The alternative argument asserted that the relevant enterprise to be considered was not only the taxpayer’s hives but also the beekeeping and honey production activities carried out by Mr Howes in his business trading as Tyagarah Apiaries.
The Tribunal rejected this argument on the basis that Mr Howes was a service provider to the taxpayer; providing management services to the taxpayer in respect of the taxpayer’s hives. Mr Howes was not conducting the beekeeping activities on the taxpayer’s land. Rather it was the taxpayer which was conducting the beekeeping activities. The enterprises of the taxpayer and Mr Howes were separate from, and independent of, each other and should be treated that way.
The Tribunal found that the taxpayer used the land for beekeeping. However, the beekeeping operations did not have a “significant and substantial commercial purpose or character” nor was it “engaged in for the purpose of profit on a continuous or repetitive basis” as required for the exemption to be available.
The Tribunal confirmed the assessments made under the Act on the ultimate basis of a finding that the appellant’s use of the relevant land for beekeeping did not, for any of the land tax years in question (2012-2014), meet the requirements for exemption to be available under s 10AA(2)(a) and (b) of the Act.
Link to decision
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